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Russian banking awash with liquidity

Russian overnight interbank rates have hit a 6-month high but industry players say liquidity is the least of the concerns of Russian banking.

­Talk of liquidity problems began when the overnight interest rates rose to 6 % – up to three times higher than the beginning of the year. Natalia Orlova, Chief Economist at Alfa-Bank says Central Bank moves in managing the rouble have played a part.

“In previous 2 months we’ve seen Central bank actively intervening on the rouble exchange rate market. According to the Central Bank they have sold around 9 billion dollars in reserves, and this definitely has reduced available rouble liquidity.”

On the contrary, Herbert Moos, the chief financial officer from VTB says cash isn’t the problem, with the liquidity shortage a seasonal issue.

“I would primarily associate that with Christmas and New Year. Banks want to make sure they’re properly funded for relatively long holiday period in Russia in January – that’s the main driver. Banking liquidity is relatively robust. If anything, banks have too much liquidity.”

Natalia Orlova, Chief Economist at Alfa-Bank says that liquidity, which has been strong all year – with some banks even taking steps to discourage deposits – will continue to be pushed by interest rates which will need to be raised as inflation ticks higher.

“Deposit inflows are more sensitive to real interest rates, which are still highly positive. Despite accelerating inflation, real interest rates are still relatively high for Russian population. We’ll definitely see the continuing inflow to rouble deposits.”

A rebounding Russian economy is expected to see liquidity boosted further as banks unwind reserve to cover non performing loans.